Lecture 4 2

Topics: Dividend, Dividend yield, Stock market Pages: 56 (3084 words) Published: July 18, 2015
Financial Strategy and Governance
Taught
by
Dr.Viktor Manahov

Financial Strategy and Governance
Lecture 4: Financial strategies from growth
to maturity to decline.

Learning outcomes
At the end of this lecture students should be able to:
•Understand the transition from growth to maturity.
•Outline key aspects in the mature business profile.
•Understand the relationship between perceived risk
and the return required in a mature business.
•Identify the most appropriate financial tools for
mature business companies.
3

Dr.Viktor Manahov
Lecture 4

7/19/15

Learning outcomes
At the end of this lecture students should be able to:

•Identify the key aspects of a declining business.
•Understand the transition from maturity to decline.
•Understand the relationship between perceived risk
and the return required in a declining business.
•Analyse ways in which a company may delay its
decline and reduce its debt ratio.
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Dr.Viktor Manahov
Lecture 4

7/19/15

The transition from growth to maturity
•When a company moves to its mature stage a
change in managerial focus is required to maintain
the high level of sales it has achieved.
•Management must recognise that the demand for
their product may decline.
•Management incentives based on growth should not
be used during the mature stage of a business.
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Dr.Viktor Manahov
Lecture 4

7/19/15

The transition from growth to maturity
•As a result of lack of consumer demand many
companies seek to reposition their products. For
example:
-Coca – Cola was suffering from the falling demand
for soda – based drinks and as a result was forced to
produce series of new products.
-McDonalds suffered from bad press and relocated
its brand name with a new healthy – living marketing
campaign.
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Dr.Viktor Manahov
Lecture 4

7/19/15

The transition from growth to maturity
•In order to minimize the decline in product demand
some companies are transferring their brands to
another product, which is in or entering the growth
stage. For example:
-Armani extended its portfolio and expanded into
everything from sofas to five – star holidays.

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Dr.Viktor Manahov
Lecture 4

7/19/15

Mature business profile
•Companies that have successfully completed the
growth stage moved to the turbulence stage.
•The period of turbulence occurs at the end of the
growth stage where there is aggressive price
competition and overproduction leading to a
shakeout of companies.
•After the shakeout the survived companies move on
to their mature stage.
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Dr.Viktor Manahov
Lecture 4

7/19/15

Mature business profile

9

Dr.Viktor Manahov
Lecture 4

7/19/15

Mature business profile
•Financial risk can be maintained at medium level
through a mix of debt and equity financing.
•Retained earnings can be used as a source of
funding new projects in addition to debt and equity.
•The amount of retained earning available for
investment is dependent on the company’s dividend
policy.
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Dr.Viktor Manahov
Lecture 4

7/19/15

Risk and return in maturity
•During the mature stage the level of business risk is
lower which means that investors may expect lower
returns.
•At this point the company should adopt appropriate
financial strategy to ensure that such reduced returns
are acceptable.
•The CAPM postulate that the beta value for the
market is one.
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Dr.Viktor Manahov
Lecture 4

7/19/15

Risk and return in maturity
•If a company has a beta less than one it means that
its returns are less volatile than the market.
•If a company has a beta greater than one it means
that its returns are more volatile than the market.
•While a company in its growth stage has a beta
greater then one, the beta of the company is likely to
move downwards towards one as it moves through
its mature stage.
12

Dr.Viktor Manahov
Lecture 4

7/19/15

Risk and return in maturity
•When a beta of the company in...
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